Adobe profit beats as Creative Cloud subscriptions soar

(Reuters) - Adobe Systems Inc, which makes the Photoshop and Acrobat software, reported a higher-than-expected adjusted quarterly profit as demand rose for Creative Cloud, the subscription-based version of its flagship software package.

Shantanu Narayen, president and chief executive officer of Adobe Systems Inc., speaks during the Reuters Global Technology, Media and Telecom Summit in New York May 21, 2008. REUTERS/Brendan McDermid

Shares of the company rose 4.4 percent in after-market trading. They closed at $43.36 on the Nasdaq on Tuesday.

Adobe has been shifting to web-based subscription service Creative Cloud from a licensing model since last year. The company said it added 221,000 paid Creative Cloud subscribers in the latest quarter, taking the total to 700,000.

Customers are responding to the attraction of the Creative Cloud offering and the convenience of subscriptions, which is reflecting in the results and stock movement, B. Riley & Co analyst Daniel Cummins said.

Adobe expects to add more Creative Cloud paid subscribers in the current quarter than in the second quarter.

“The guidance continues to be pretty impressive. They are essentially setting some pretty high standards in terms of what they need to do for Q3 here, to surpass what was an already impressive Q2 in terms of subscription adds,” Edward Jones technology analyst Josh Olson told Reuters.

Adobe forecast current-quarter adjusted earnings of 29 cents to 35 cents per share on revenue of $975 million to $1.03 billion.

Analysts on average are expecting earnings of 35 cents per share on revenue of $1.01 billion, according to Thomson Reuters I/B/E/S.

Adobe said in May that upgrades for Creative Cloud, which includes Photoshop, Illustrator and Flash, would be available only through online subscriptions. The company also said it would not develop versions of the license-based Creative Suite.

Net income fell to $76.5 million, or 15 cents per share, in the second quarter, from $223.9 million, or 45 cents per share, a year earlier.

Excluding items, earnings were 36 cents per share.

Revenue fell 10 percent to $1.01 billion.

Analysts on average had expected earnings of 33 cents per share on revenue of $1.01 billion, according to Thomson Reuters I/B/E/S.

A rapid adoption of a subscription model tends to lower revenue in the short term as fees are collected monthly, instead of upfront one-time payment.

Reporting by Sruthi Ramakrishnan in Bangalore; Editing by Sriraj Kalluvila